Before U.S. President Donald Trump announced new 25% tariffs on virtually all goods imported from China on Sunday, the Chinese government was planning to backtrack on all of its previously made commitments to the U.S. government, according to a Reuters report today.
China First to Backtrack On Previous Trade Commitments
According to U.S. government and private sector sources, China was already planning on backtracking on some important commitments it had previously made to the U.S. government before arriving for the new trade negotiations with the U.S. government. The diplomatic cable from China arrived in the U.S. on Friday with many edits to the 150-page draft trade agreement that would have eliminated all the trade progress the two countries made since last year.
China had previously committed to ending U.S. IP theft, as well as ending the practice of forcing technology transfers on U.S. companies that want to do business in China via mandatory 50-50 joint ventures or through other means.
China Would Continue IP Theft, Forced Tech Transfers
According to Reuters’ sources, China has made reversals to its previous commitments in each of the seven chapters of the trade agreement, and it seems it's no longer willing to resolve the complaints over which the U.S. government started the trade war in the first place.
These complaints include: preventing intellectual property and trade secrets theft, ending of forced technology transfer for U.S. companies that want to do business in China, improvements to competition policy, access to financial services and an ending to currency manipulation.
President Trump tweeted on Sunday that he would raise the tariffs on $200 billion worth of goods (including electronics) to 25% from the current 10% and may add the 25% tariffs to an additional $325 billion worth of goods.
All of this, plus the already existing 25% tariff on another $50 billion worth of goods means that almost all of the $540 billion worth of goods being imported from China will have a 25% tariff imposed on them, as soon as this Friday, when the new tariffs will go into effect.
The problem is that China would do things like export through 3rd countries, to get around trade court rulings, and has a bad track record of honoring commitments secured in bilateral negotiations.
Clearly, more needed to have been done, and with more urgency. I think we can agree on that much.
Not all short-sightedness. China has a way of playing rope-a-dope, where they dangle the carrot of their growing domestic market in front of foreign companies and give them just enough of a taste to keep them interested and chasing after longer-term growth. However, as you said, once China has developed its own domestic competition, then the tariff and non-tariff barriers come into force. So, whether people engaged with China for short-term gains or long-term ambitions, China could usually tilt the tables to come out ahead.
The biggest error was really in thinking that China would follow the model of other developing and developed countries and play by the rules of the current economic order. China clearly had other ideas.
China certainly didn't invent off-shoring of labor from US factories. It's a long-term trend that's been going on since at least the 1970's - long before China attained favored-nation status, in the WTO.
...not to excuse them or their anti-competitive practices, but we can't realistically put all of the sins and downsides of globalization on them.
Actually, the biggest hammer we could wield would've been to form a multi-lateral coalition with other developed countries - who are basically all in the same boat as us. Don't forget that the EU's economy is even bigger than the US. If we got together with them, S. Korea, Japan, Canada, Australia, etc. we'd have way more negotiating power than what Trump is playing with. But, he doesn't believe in multilateralism, always preferring to go it alone.
This also plays into the Belt & Road situation, where you can't dissuade countries from joining unless you give them an alternative. Well, we had (part of) an alternative, if an imperfect one, in the form of TPP. There were certainly things not to like about it, but rather than improve it, we just walked away from it, leaving China to have pretty much the only game in town.
The old phrase "leader of the free world" was a testament to how much sway the US had over world affairs. Except, as we alienate friends and allies I see that influencer status quickly receding into the past, and China knows it. They need the US market, but less than ever before. By going in without any allies, Trump has raised the stakes for the US, and lowered the stakes for China. Bad move.
TPP was bad enough it became a hot coal. It also didn't help with China's dealings in most of the world, but that's another issue I suppose. But it didn't just vanish... they ended up with the CPTPP. Not sure that it has really helped then a whole lot, and even the current CPTPP doesn't include Korea, or several other vital nations. Trump has said he'd be open to rejoining the CPTPP if they were willing to negotiate a better deal. None of it matters though if you leave the door open for China to shift goods via deals with neighboring nations.
A lot of people disliked it, for various reasons. The business community wasn't one of them. Fact is, the US actually stood to gain the most from it, since most of the other signatories' markets had various tariff and other barriers to US products, yet our markets were already open to them. I had my own issues with it, but those were really on principled grounds, rather than commercial. For Trump to say this is all down to commercial concerns sounds like he's really not concerned with the reasons so many people didn't like it. He slammed the door shut on it about as firmly as he ever does.
If you haven't noticed, he doesn't like any sort of partnerships, coalitions, or anything multilateral. Even to the point of undermining NATO and the WTO, where he's blocking the appointment of new judges, in spite of the overwhelming track record that trade courts have, finding in favor of the US. He has a misplaced faith in his own prowess at negotiation and he overestimates the clout of the US.
Well, it's not worth a whole lot, in its current degraded form.
Here's an interesting thought experiment. If you're a developing country, you need infrastructure and access to foreign markets, and only China is knocking on your door - what do you do? You might be suspicious of China's long-term objectives, but you have more immediate concerns and no real alternatives.
That's why we needed strong trading blocks and to step up foreign infrastructure investment (e.g. through World Bank, etc.) - to give countries a plausible alternative to China. Without that, China has been establishing captive markets, buying up ports, and tying up supply chains. It's like China is playing chess or Go, while Trump is out back playing rock-paper-scissors. He literally has no answer to Belt & Road. It's now even got a toe-hold in Greece and Italy!
And likewise, when it comes to dealing directly with China on issues like IP protection and market access, why wouldn't you want to go in with all the other developed countries, who have virtually the same interests and grievances as we do? China might be able to weather a trade war with the US, but they certainly couldn't with the rest of the developed world. He's being reckless - no two ways about it. I give him credit for taking more political risks than most politicians would, but then why wouldn't you want every advantage you can get, when the stakes are so high?
I'm not just being rhetorical, here. Think about it - how would you tip the balance more in favor of the US? How would you try to counter China's global ambitions?
Most of the nations I was concerned with should fall under the auspices of the EU or our closest Asian allies in the first place. Yet here we are, discussing how the US might come in and mop up. But in this case I don't know that we have the willpower to do anything. The bottom line is China doesn't just "invest" or provide aid, which often buys you little power past the short term. The Chinese on the other hand? They buy. They control. They even own businesses and property in the west (using our own openness against us). The Chinese don't share our delicate sensibilities, they don't have any issues with imperialism or closed markets. We are rather squeamish by comparison. Most in the West wouldn't like to hear the answer to the question of "How do we stand toe-to-toe with Chinese ambitions?"
TPP basically became a stand-in for everything that anyone didn't like about globalization. Trump killed it because it had become unpopular and because he overestimates his ability to make bi-lateral deals - not because it didn't provide advantage to the US.
The other thing you're overlooking is how long trade deals take to negotiate. It's not like any country can just come along and strike up a trade deal with the US. They have to get in line. And remember that the EU and Japan are still waiting their turn. So, everyone else is probably going to be waiting well into the 2020's. Meanwhile, China is steamrolling along...
Well, Belt & Road seems mainly targeted at the developing world, which also comprises most of the fastest growing markets. I don't quite follow who you're talking about and why.
No, we're not. Or, at least I'm not. I'm talking about US access to markets and raw materials - things squarely in US national interests, which also happen to be in the national interests of most of our traditional allies and trading partners. There ought to be enough collective will to form some answer to Belt & Road, but the developed world has been driven to distraction while China is eating our lunch.